After six months of declines, the default ratio stood at 3.86% in August, up from 3.85% the previous month
Rising interest rates, households having to adjust their budgets to cope with rising prices, and families being forced to raise savings to cover daily expenses. The difficult situation caused by the energy and inflation crisis caused bank non-performing loans to cut for six consecutive months in August, to 3.86%, from 3.85% in July.
However, the progress made in August is very moderate, demonstrating that the sector has managed to keep the risk of default from its customers at bay for the time being, in a context of severe economic difficulties for households and businesses. In fact, the bad credit ratio is still well below the 4.3% that started the year and the 4.43% recorded in August 2021.
According to the statistics published this Monday by the Bank of Spain, the main reason for the recovery seems to lie in the figures of the so-called financial credit institutions (EFC). The arrears in this specialized consumer credit segment increased somewhat more over the period, from 6.28% to 6.30%.
With this perspective, it appears that the impact of the rise in interest rates on overall default rates for the sector has not yet been reached. In fact, the financial entities themselves are postponing the possible rise in defaults until 2023, which will be moderate and fully manageable anyway. Especially since the sector is still building up a remarkable provision of 32,981 million euros at the end of August. The figure implies about 6,100 million less than a year ago, but it is enough to cope with possible defaults, for example due to the rise in mortgage prices.
To avoid this situation, the financial sector has accelerated negotiations with the government in recent days to prevent the rise in the Euribor from forcing many families to forgo their mortgage payments. In principle, the final agreement was expected to be ready this week, coinciding with the quarterly earnings season for the sector. But there are still differences to execute the agreement, based on a principle in extending the terms of the mortgages to lower the monthly installments.
Avoiding default in this mortgage segment is essential for banking. And not just because of the fear of having to make bigger provisions against possible defaults. It is also a matter of reputation.
Currently, and according to data from the Bank of Spain, in August bad debt decreased by about 200 million euros compared to the previous month (-0.42%) and by 6,307 million compared to a year earlier (-11 .8%. However, the NPL ratio rose slightly as private sector lending declined by EUR 7,473 million (-0.57%) in the month to EUR 1.22 billion. Compared to a year earlier, the loan volume grew by 15,752 million euros (+1.32%).
Source: La Verdad
I’m Wayne Wickman, a professional journalist and author for Today Times Live. My specialty is covering global news and current events, offering readers a unique perspective on the world’s most pressing issues. I’m passionate about storytelling and helping people stay informed on the goings-on of our planet.
